AN EVALUATION OF SOLUTIONS TO CALIFORNIA’S ROADWAY DIRE STRAITS

A CRITERIA ALTERNATIVE MATRIX

A Thesis

Presented to the faculty of the Department of Public Policy and Administration

California State University, Sacramento

Submitted in partial satisfaction of the requirements for the degree of

MASTER OF PUBLIC POLICY AND ADMINISTRATION

by

Andrea Nichole Van Den Berg

SPRING 2013

ii

© 2013

Andrea Nichole Van Den Berg

ALL RIGHTS RESERVED

iii

AN EVALUATION OF SOLUTIONS TO CALIFORNIA’S ROADWAY DIRE STRAITS

A CRITERIA ALTERNATIVE MATRIX

A Thesis

by

Andrea Nichole Van Den Berg Approved by: __________________________________, Committee Chair Robert W. Wassmer, Ph.D. __________________________________, Second Reader Su Jin Jez, Ph.D. ____________________________ Date

iv

Student: Andrea Nichole Van Den Berg

I certify that this student has met the requirements for format contained in the University format

manual, and that this thesis is suitable for shelving in the Library and credit is to be awarded for

the thesis.

__________________________, Department Chair ___________________ Robert W. Wassmer, Ph.D. Date Department of Public Policy and Administration

v

Abstract

of

AN EVALUATION OF SOLUTIONS TO CALIFORNIA’S ROADWAY DIRE STRAITS

A CRITERIA ALTERNATIVE MATRIX

by

Andrea Nichole Van Den Berg

Funding transportation projects in California presents a difficult policy problem for the

state, as the current taxation mechanisms used are insufficient. The policy question at hand for

California decision makers is: What viable transportation funding alternatives exist for

implementation statewide to supplement the currently lacking funds? To answer this policy

dilemma, this thesis delves into available literature and performs a Criteria Alternative Matrix

analysis to evaluate three policy options: Public-Private Toll Roads, Mileage Fees, and a State

Fuel Sales Tax. The four evaluative criteria used in this thesis to assess the practicality of the

alternatives are Low Administrative Costs, Equity, Sustainability, and Internalizing Negative

Externalities. Based on these criteria and their given weights and ranking, two alternatives arose

as feasible policy options. As a result of the research and analysis provided herein, I recommend

California State decision makers pursue implementing both Public-Private Toll Roads and a State

Fuel Sales Tax as short and long term policy solutions to California’s roadway dire straits.

_______________________, Committee Chair Robert W. Wassmer, Ph.D. _______________________ Date

vi

ACKNOWLEDGEMENTS

I want to thank my close friends and family who gave their support during these last three

years. Your words of wisdom and confidence have played a huge role in my ability to

successfully complete my graduate studies. I especially would like to thank my Mom and Dad

for your unwavering love and support throughout my educational endeavors. I want to thank

Arianna Valle for always lending an ear to the graduate degree frustrations and providing

invaluable career and personal advice. You have been a beloved friend during this process. Wes

Rutland-Brown, thank you for always being available to discuss the challenges of my thesis and

provide innovative solutions in both my studies and my career. I cherish your support and

guidance and hope to one day repay the favor.

Finally, thank you to the Public Policy and Administration department. Faculty, staff,

and students, thank you for providing instrumental academic and moral assistance and

developmental guidance throughout the program. Thank you to Dr. Rob Wassmer and Dr. Su Jin

Jez for your dedication and guidance in developing and completing this thesis.

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TABLE OF CONTENTS Page

Acknowledgements .................................................................................................................. vi

List of Tables ........................................................................................................................... ix

List of Figures ........................................................................................................................... x

Chapter

1. INTRODUCTION ..................... ……………………………………………………….. 1

Transportation System Background ............................................................................. 2

Federal Transportation Funding .................................................................................. 3

State and Local Transportation Funding ...................................................................... 4

California Roadway Funding History ........................................................................... 6

Policy and Economic Background ................................................................................ 8

2. LITERATURE REVIEW ................................................................................................. 11

Defining Roadway Pricing ......................................................................................... 11

Public-Private Toll Roads .......................................................................................... 13

Mileage Fees ............................................................................................................... 16

State Fuel Sales Tax .................................................................................................... 20

Conclusion .................................................................................................................. 22

3. METHOD FOR EVALUATION ...................................................................................... 23

CAM Methodology ..................................................................................................... 25

Evaluative Criteria ...................................................................................................... 28

Sensitivity Analysis .................................................................................................... 32

4. ANALYSIS ....................................................................................................................... 35

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Alternative 1 – Public-Private Toll Roads .................................................................. 35

Alternative 2 – Mileage Fees ...................................................................................... 38

Alternative 3 – State Fuel Sales Tax ........................................................................... 41

Sensitivity Analysis .................................................................................................... 43

Conclusion .................................................................................................................. 44

5. RECOMMENDATIONS AND CONCLUSIONS ............................................................ 46

Summary ..................................................................................................................... 46

Policy Recommendations ........................................................................................... 48

References ............................................................................................................................... 53

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LIST OF TABLES Tables Page

1. Quantitative Criteria-Alternative Matrix ...................................................................... 27

2. CAM Criteria Weights .................................................................................................. 29

3. Sensitivity Analysis Criteria Weights ........................................................................... 33

4. Public-Private Toll Roads Quantitative CAM .............................................................. 38

5. Mileage Fees Quantitative CAM .................................................................................. 41

6. State Fuel Sales Tax Quantitative CAM ....................................................................... 43

7. Sensitivity Analysis ...................................................................................................... 44

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LIST OF FIGURES Figures Page

1. Federal Gas Excise Tax Rate .......................................................................................... 4

2. Gasoline Taxes .............................................................................................................. 20

1

Chapter 1

INTRODUCTION

The California roadway system is essential to the mobility of California residents, goods,

and interstate commerce. Due to California’s geographical vastness, transportation on roadways

is a daily necessity to travel to work, school, home, and transport goods within the state and the

country (California Department of Transportation, 2010). In the last twenty years, increased

demand and use of the roadway system has left many roads battered and abused. California’s

inability to fund necessary maintenance of the transportation system has left it aged and

improperly maintained creating degradation of roads and increased future fiscal hardship within

California to generate funds for roadway repairs. Currently, nearly 30% of California’s roadway

system, with an expected degradation of 10% more every 20 subsequent years, is in need of

significant maintenance and/or rehabilitation (California Department of Transportation, 2010). In

the next ten years, it will cost $340 billion to bring roads up to transportation industry standards

and specifications as outlined by the California Department of Transportation (Caltrans)

(California Transportation Commission, 2012). Additionally, California faces a current need of

$195 billion in roadway expansion to meet transportation demands. With revenues amounting to

only $240 billion, California’s transportation system has a funding shortfall of approximately

$294 billion dollars (California Department of Transportation, 2011). In this thesis, I offer advice

to California policy makers as to what non-federal policy alternatives are available to raise

revenue to pay for this roadway maintenance.

This thesis will delve into three non-federal policy alternatives to funding California

roadway maintenance: Public-Private Toll Roads, Mileage Fees, and a State Fuel Sales Tax. In

doing so, I begin by addressing the transportation funding background by providing an

understanding of the transportation system background, federal transportation funding, state and

2

local transportation funding, California roadway funding history, and the policy and economic

background of surface transportation. Chapter 2 of this thesis addresses the applicable research

and literature identifying transportation funding alternatives being discussed by academics and

industry experts. Next, I explain the Criteria-Alternative Matrix (CAM) analysis method used to

evaluate the three chosen alternatives. To perform qualitative and quantitative CAMs, I identify

evaluative criteria and address the sensitivity analysis necessary in Chapter 3. After identifying

the CAM method, Chapter 4 analyzes the results for each alternative in both the qualitative and

quantitative CAMs. Finally, based on the analysis and research, Chapter 5 provides policy

recommendations to guide policy makers and the transportation industry toward the most feasible

funding solution for California.

Transportation System Background

Federal, state, and local public resources fund transportation throughout the United States

and its territories. Since 1776, transportation has been a focal interest for the U.S. government

(London, Peek, Saltzmand, & Gunaydin, 2001). However, throughout history, the responsibility

of financing transportation has shifted dramatically from primarily federally funded to largely

state and locally managed and financed as the transportation network has developed and

transportation shifts toward maintenance. The method of funding roads has been modified

throughout the decades, changing for demand and economic conditions.

The nation’s transportation network is comprised of a variety of roadway types,

depending on the travel needs and function of the road. A roadway’s objective and functional use

determines its classification and thus its eligibility for funding. These defining road categories

are Interstates, Non-Interstate Access-Controlled Arterials, Other Access-Controlled Arterials,

and Local Roads. Interstates, classified for high mobility and long distance travel, are the most

limited access roadways on the transportation system. Totaling approximately 1.4% of road

3

miles, these roads on the National Highway System are designed for the travel of vehicles and

commerce between states (R.D. mingo and Associates & CDM Smith, 2012). Similarly, Non-

Interstate Access-Controlled Arterials are on the State Highway System, approximately 6.7% of

road miles, and designed with limited access points for maximum mobility (R.D. mingo and

Associates & CDM Smith, 2012). Other Non-Access-Controlled Arterials are important

roadways that provide access to the flow of traffic through intersections and driveways. This

28.8% of roadways provide for circulation, intercity travel, and neighborhood connector

transportation needs (R.D. mingo and Associates & CDM Smith, 2012). Finally, Local Roads

provide direct entry to roadside land and attractions. Accounting for the largest number of lane

miles (63%), local roads fulfill the need for urban and rural connections to Interstate, Non-

Interstate Access-Controlled Arterials, and Other Access-Controlled Arterials (AASHTO, 2013).

The federal government dedicates its transportation funding primarily to roadways of regional

and national significance, thus emphasizing the roadway functional classification and the focus of

federal funds on Interstates and Non-Interstate Access-Controlled Arterials.

Federal Transportation Funding

For decades, the federal government shouldered much of the transportation funding

burden as it focused on the westward movement and building the National Highway System. As

the country industrialized, the demand for uniform and reliable highways increased. The

implementation of the National Highway System, funded primarily by the federal government,

laid the foundation for roadways and the integrated transportation program in place today

(Surface Transportation Policy Project, 2000). In addition to the Nation Highway System, state

and local governments have grown their transportation networks with state and local roads to

meet the growing demand of drivers throughout the country. Moving forward, the transportation

industry faces the dramatically different mission of maintaining the intricate and elaborate system

4

of roads (London, Peek, Saltzmand, & Gunaydin, 2001). Following is an explanation of the

different types of funding: federal, state, and local.

Enduring major structural changes with each transportation bill throughout history,

federal funding for roads has maintained a steady role in the funding equation. In 1932, President

Hoover authorized the first federal tax on fuel to close the budget gap. In 1956, Congress

established the Highway Trust Fund to construct the National Highway System along with aiding

in the construction of state and local roads (Transportation for Tomorrow, 2007). Since then, the

Federal Gas Excise Tax has

increased from three cents to

18.4 cents per gallon of gas

sold in 1997 (U.S

Government Accountability

Office, 2011). Figure 1

depicts the fluctuation of the

Federal Gas Tax throughout

history. These funds are

funneled into the Highway Trust Fund and apportioned to states based on the transportation

authorization bill to aid state and local governments in the effort to build and maintain roads

throughout the country. In California, federal funds account for approximately 23% of

transportation funding at $4.6 billion (Legislative Analyst's Office, 2007).

State and Local Transportation Funding

Largely, state governments are delegated the responsibility of managing the National

Highway System along with their own State Highway System and state roads (U.S Government

Accountability Office, 2012). In doing so, states have passed a variety of transportation funding

3   4  

9   9   9.1  

14.1  

18.4   18.4   18.3   18.4  

0  2  4  6  8  10  12  14  16  18  20  

1956   1959   1983   1984   1987   1990   1993   1995   1996   1997  

Cents  p

er  Gallon  

Year  

Figure  1:  Federal  Gas  Excise  Tax  Rate  

5

policies ranging from state gas taxes that mimic the federal method to issuing bonds, fees, and

sales taxes to generate revenue for transportation. For example, all states have adopted an excise

fuel tax ranging from 7 to 32 cents per gallon while only nine have instituted a type of sales tax

directed toward transportation (Dierkers & Mattingly, 2009). Furthermore, many states now

utilize proceeds from bonds and toll roads to fund construction and maintenance of new

roadways. Fees such as vehicle registration fees, driver’s license fees, and weight fees, to name a

few, are used in some states to supplement transportation related expenses and departments

(Dierkers & Mattingly, 2009). Each state gathers these funds, which are apportioned to projects

and local governments, based on need and demand.

Although state governments have more funding policy options than the federal

government, the relatively smaller and similar focused constituents of local agencies are in the

best position to raise funds, depending on the economic and political environment (Bolton, 2010).

For example, a city can approve a sales tax on a particular good or service in addition to any

federal or state tax that applies to residents within its jurisdiction (AASHTO, 2013). The

traditional funding method for local transportation projects is the use of federal or state funds

supplemented by local general fund appropriations. Local governments throughout the country

are beginning to employ a variety of traditionally state funding methods to supplement their

transportation budgets including fuel taxes, registration fees, tolls, and fares. These funds are

allocated to the agency’s transportation needs (AASHTO, 2013). While passing these types of

fees or taxes can be difficult due to voter apprehension, a small local agency is far better fitted to

do so than a large state government where benefits of the funds are more difficult for voters to

realize (Kockelman, 2006). Funds raised by local agencies can be used on local roads that federal

and state funds may not be eligible for.

6

The three main types of transportation funding, federal funds, state funds, and local

funds, provide needed resources in the roadway maintenance effort. Unfortunately, these funding

methods, in their current capacities, remain insufficient in comparison to the strain of the

transportation system in California and throughout the country.

California Roadway Funding History

California has five main players in the decision-making process with varying levels of

influence and control of transportation funding choices: the California State Legislature,

California Transportation Commission (CTC), California Department of Transportation

(Caltrans), Metropolitan Planning Organizations (MPOs) and Regional Transportation Planning

Agencies (RTPAs), and cities and counties (California Department of Transportation, 2011). The

State Legislature serves as the transportation establishing authority as it can influence codes and

laws to fund transportation programs (Public Policy Institute of California, 2010). The legislature

also determines the funding levels appropriated to transportation in the annual budget and

institutes funding options and dedicated revenue sources for roadways (California Transportation

Commission, 2011). The CTC is a body of nine appointed officials that reviews and approves

nominated transportation programs and projects for funding. The CTC determines the priority

and programming of funds for projects that Caltrans will manage or oversee. Caltrans is

responsible for managing the transportation system within California and balancing the local and

state demand for transportation resources (California Department of Transportation, 2010).

Caltrans functions as an administering and flow-through agency as it develops and executes

transportation improvement projects and oversees projects administered by regional and local

agencies (California Department of Transportation, 2011). MPOs and RTPAs assist with the

regional transportation needs. By planning and administering regional and metropolitan level

projects, MPOs and RTPAs influence and fulfill transportation needs across city lines to create an

7

integrated network of roads. Finally, cities and counties provide the local level urban and rural

development connection for transportation and funding of the roadways by establishing

appropriate planning and land-use policies within their jurisdictions (AASHTO, 2013).

Federal funds are purposed at increasing capacity to the roadways thus the use of which

further increases California’s road maintenance burden since these funds cannot be used for

maintenance or upkeep (Committee for the Study of the Long-Term Viability of Fuel Taxes for

Transportation Finance, The National Academies , 2006). Essentially, over the years California

has maintained consistent revenue flow with more roads to distribute maintenance dollars across

(California Transportation Commission, 2012). Legislative and statutory authority to generate

revenues using taxes, fees, and bonds provides California with the ability to increase

transportation funding.

California currently employs a State Fuel Excise Tax, State Sales Tax, and Fuel Tax

Swap, which all contribute to transportation funding. The State Fuel Excise Tax mimics the

Federal Excise Tax on fuel sales with an 18 cent per gallon tax on all fuel sales (California

Department of Transportation, 2011). The revenue generated from this excise tax is allocated to

state, regional, and local transportation agencies according to a formula determined by the

Legislature. Additionally, California dedicates ¼ % of the 7.25 % State Sales Taxes to funding

local transportation projects while the remaining 7 % goes to Local Government General Funds

and the State General Fund (California Department of Transportation, 2011). The Fuel Tax Swap

is a policy enacted in 2011 realigned the previous fuel sales tax and created an excise tax to

generate revenues for new construction projects and roadway maintenance projects (California

Department of Transportation, 2011). Furthermore, California established Truck Weight Fees,

which charges heavy vehicles for the additional wear and tear done to the roadways. The

revenues gathered from this policy, however, pay for transportation debt services rather than

8

directly maintaining the roads (California Transportation Commission, 2012). Finally, the

Legislature passed Proposition 1B Bonds in 2006 to provide the necessary funding to “relieve

congestion, facilitate goods movement, improve air quality, and enhance the safety and security

of the transportation system” (California Department of Transportation, 2011, p. V). Proposition

1B provided approximately $20 billion to fund such projects and allowed the transportation

decision makers at all levels to execute the much needed projects to improve and enhance the

transportation system. The current taxes, fees, and bonds are an attempt to provide sufficient

transportation funding to California and its many local agencies. Unfortunately, due to the

difficult political and economic environment, increases and adjustments to these policies are

extremely cumbersome.

Policy and Economic Background

The American Society of Civil Engineering has been monitoring the state of

infrastructure across the country and determined that more than 30% of American roadways are

in a state of disrepair (Miller, Benjamin, & North, 2010). The roadways in the State of

California, and throughout the rest of the country, are publically owned and mostly funded by

taxes and fees. By paying taxes, motor vehicle fees, and gas taxes, many drivers believe that they

have contributed their fair share to the roadway system. The common belief is that roadways are

a public good and a right for drivers; however, this assumption is false. A public good is non-

rival and use of which cannot be withheld (Miller, Benjamin, & North, 2010). With limited ways

to keep people from driving on the roads, one person’s driving habits deplete the quality of the

road for the next driver through congestion and road damage. As roads can be diminished, they

constantly need costly maintenance as Californians continue to drive more.

The root of the roadway maintenance crisis lies in the political economy within

California. Political economy refers to “the study of causes and consequences of political

9

decision-making” (Miller, Benjamin, & North, 2010, p. 128). Due to the constantly changing

political environment, many pressures reside on politicians to create change for society and make

the state a better place to live with more liberties and luxuries to enjoy. Creating new sources of

funding is critical in California to decrease the impact on the current spending constraints on the

budget (Taylor, 2011B). Maintaining roads brings about two negative externalities for drivers

that affect a politician’s reelection ability, increased cost to taxpayers and increased congestion

during the long restoration process (Surface Transportation Policy Project, 2000). Attempting to

implement a new tax or increase an existing tax is political suicide in the State of California, thus

many politicians attempt to contribute to infrastructure by building new construction. Bonds

usually fund new construction instead of employing immediate taxes increases, which politicians

hope the bills for do not come due until after Election Day (Surface Transportation Policy Project,

2000).

An alternative to consumer taxation is the idea of user fees on roads. User fees present an

opportunity for drivers to pay for usage they incur. The current attempt at user fees is the gas tax

of 18 cents per gallon that attempts to equate gallons of gas purchased with amount of driving

(California Department of Transportation, 2011). Unfortunately, this method no longer treats

each driver equitably. With the creation of hybrid and electric vehicles, people can drive farther

without paying more for gas. Research shows that a vehicle that gets twenty miles to the gallon

pays about $254 per year in gas tax but a person who drives a hybrid and gets forty miles to the

gallon pays half the tax bill per year (Oregon Department of Transportation, 2010). This system

bears no consideration for the wear and tear that each car contributes to the roadways. Instead, a

system in which users pay for the damage incurred on the roads will help sustain maintenance

funds now and in the future.

10

The maintenance of roadways is becoming more of a problem as time progresses because

the current fuel excise tax has not changed or increased since 1993 to accommodate for inflation,

increased usage of roads, or the increase in lane miles built (Surface Transportation Policy

Project, 2000). As inflation has risen over the years, the purchase power of the 1993 cents per

gallon tax has diminished considerably thus further burdening the State’s ability to pay for road

maintenance. While the volume of fuel sales has increased, the growth of fuel excise tax

revenues is not proportionate to inflation, as it has remained stagnant at 18 cents per gallon.

Building roads and highways to accommodate the number of drivers is not sufficient. Constant

maintenance and rehabilitation of the aging roadways is necessary to sustain the vast

transportation needs of California residents (California Department of Transportation, 2010).

Public intervention in this maintenance problem is necessary because current standards

and procedures are insufficient. As political figures shy away from these costly expenditures, the

current roadway maintenance program continues to fall into disrepair along with approximately

30% of the roadways in California (California Department of Transportation, 2010). To create

statewide change and maintain roads properly, political affiliations must be set aside to design a

cost-effective and equitable solution that will sustain itself for years to come as to not render the

maintenance funds deficient again (Surface Transportation Policy Project, 2000).

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Chapter 2

LITERATURE REVIEW

There are many methods discussed by experts to fund transportation; however, change is

desperately needed in the transportation-funding field to bring about new revenue sources not yet

dedicated in the California State Budget. This analysis approaches the financial burden of

maintaining and rehabilitating the California roadways by proposing three alternative solutions to

the current situation: Public-Private Toll Roads, Mileage Fees, and State Fuel Sales Tax.

Literature presented by transportation and academic experts on new alternatives focus on

roadway pricing ideas such as optimizing user fee adaptations and reforming the current state gas

tax to reflect a sustainable revenue source. All options presented by experts are a form of user fee

or tax that attempt to assess the driver contribution to roadway maintenance based on driving

patterns. First, this review delves into the concept of roadway pricing to give an understanding of

the direction the transportation funding industry is headed. Following, I provide a review of the

most predominant alternatives currently being explored by transportation agencies and policy

experts around the country. These debated funding alternatives are Private-Public Toll Roads,

Mileage Fees, and a State Fuel Sales Tax.

Defining Roadway Pricing

Decision makers in California and across the country are now broaching the discussion of

charging drivers for the necessary roadway maintenance. Roadway pricing is a method of

funding transportation projects by levying user fees on roads to assess the damage incurred

(Kockelman, 2006). Road pricing attempts to place a value on the infrastructure system by

charging drivers for their equitable portion of the extensive road maintenance costs. Experts in

the field debate the equity of these mechanisms, as it is difficult to define or determine an

individual’s share of maintenance costs. Forms of road pricing mechanisms include urban area

12

tolls, congestion pricing, occupancy-based fees, emission fees, vehicle-miles traveled fees, and

fuel taxes (Committee for the Study of the Long-Term Viability of Fuel Taxes for Transportation

Finance, The National Academies , 2006; California Transportation Commission, 2012). Road

pricing is believed to be an innovative solution to the transportation dilemma that provides

options to drivers that may aid the restoration of roads and deliver premium service to those who

choose to use it (Colorado State University, 2012).

Transportation funding policy proposals provide additional pecuniary or multiplier

effects that may affect decision-making for policy analysts (Fuguitt & Wilcox, 1999). For

example, road-pricing systems will encourage drivers to alter their travel habits potentially

creating a reduction on emissions, decreased roadway congestion, and increased safety on the

roads. These systems present an incentive to reduce driving when possible due to increased

driving costs for high-efficiency vehicle users accustomed to smaller gas tax bills and an inability

for drivers to avoid paying their fair share of roadway maintenance costs (Munger, 2000; Miller,

Benjamin, & North, 2010).

Due to the groundbreaking nature of road pricing methods, public apprehension is

expected. Thus, the best advice is to approach each project on a case-by-case as the factors

involved are rarely standardized. The University of Texas at Austin, in conjunction with Post

Buckley Schuh and Jernigan architecture, engineering, and construction management firm

(PBS&J), conducted a survey to determine the public perception of transportation policies in

Texas where it was identified that the public prefers funding mechanisms that assess charges or

fees based on the impact to the roads (Kockelman, 2006). Because of the highly political nature

of transportation funding, assessing the acceptability of policy options is essential to solving the

transportation system funding dilemmas (Smirti, Evans, Gougherty, & Morris, 2007). Each of the

13

alternatives addressed in the subsequent sections of this chapter identify the perceptions and

potential acceptability identified in various studies.

Public-Private Toll Roads

The first alternative for this policy problem is the implementation of toll roads throughout

the State of California. A toll road is a type of roadway where a fee is collected for each driver

that passes over the roadway. Toll roads provide a number of benefits including roadway

construction and maintenance funding mechanisms for new and increased capacity roads

(Monroe, Schmidt, & Westwind, 2006, p. 4). Due to California’s dire need for restoration of its

roads, toll roads provide an opportunity to help finance the costs by utilizing external sources of

funds. The introduction of toll roads allows drivers to pay for their usage creating equity within

the financing of roads; however, the regressive nature of tolls potentially inequitably places the

toll burden on the poor (Committee for the Study of the Long-Term Viability of Fuel Taxes for

Transportation Finance, The National Academies , 2006). On the other hand, tolling of roads

adds numerous benefits to roadways including expedited project delivery and long-term revenue

sources due to the established flow of toll fares as well as reduced congestion on the toll road and

surrounding routes as the implementation provides additional driving options (Monroe, Schmidt,

& Westwind, 2006). Due to the limited-access design of urban and rural roads, state and local

governments are better situated to optimize the tolling potential.

Currently, the majority of roads are completely publicly funded using tax revenues to

maintain and operate the roadways. Toll roads introduce the potential for privatizing roads and

lessening the burden of road maintenance for the state (Port, 2005). This privatization often takes

the form of public-private partnerships, which provide mutual benefit for all parties involved as

these arrangements meld the available private capital with the revenue potential, and deficit of the

public sector (Brown, 2007). The privatization of roads in this fashion allows municipalities to

14

capitalize on the unrealized efficiencies of the private sector while still upholding operating and

maintenance standards typical of public sector requirements (London, Peek, Saltzmand, &

Gunaydin, 2001).

Goldman Sachs and Company wrote an article in Public Works Management and Policy

about the potential of public-private partnerships as the future of transportation funding (Brown,

2007). Public-private partnerships are a step toward the privatization of roadways and

transportation improvements. As a widely used funding mechanism around the world, the United

States is just breaking the public-private boundaries (Monroe, Schmidt, & Westwind, 2006).

Public-private partnerships can be used to finance a variety of projects; however, the financial

design is best suited for revenue-generating projects that will produce the funds needed to pay off

the balance of the bond or loan issued (Port, 2005). For example, the construction of toll roads

provides future revenues to be realized for which bonds could be issued to fund transportation

projects, providing developers annuities, concession payments, or upfront payments (The

Congress of the United States, 2012). Brown states that pensions and insurance funds have

fueled the market expansion as they search for long-term reliable investments and payouts (2007).

Because of the growing need for transportation investments, public-private partnerships are

becoming a viable funding mechanism for state and local governments. Utilizing the private

sector to construct and operate transportation enhancements is of increased interest to

transportation agencies as public-private partnerships supplement the limited capital for

municipalities’ infrastructure projects (Port, 2005).

The State of Indiana is one of many states struggling to fund its transportation program.

With a multi-billion dollar projected deficit in its transportation plan, the state entered into a

private-public partnership in which a private party will build, maintain, and operate the Indiana

Toll Road (Brown, 2007). These concession agreements, while specific terms may vary project

15

by project, stipulate that the given state will provide an upfront payment to construct/perform the

project in exchange for lease payments, maintenance, and operation of the roadway by the

concessionaire, or private party. Private-public partnership arrangements allow for cost sharing

between the private and public sectors, reducing the public upfront and maintenance burden and

sets up a long-term financial arrangement in which both parties stand to realize steady cash flows

in the future (Committee for the Study of the Long-Term Viability of Fuel Taxes for

Transportation Finance, The National Academies , 2006).

A Texas study utilizing interviews, surveys, and focus groups identified significant

support by commuting respondents for toll roads over the gas tax method. When framed as an

alternative to rising gas prices, self-responders favored toll roads when understood that significant

benefits can be realized for the public sector and private drivers. However, responses trended

toward current toll users supporting the policy option while long distance drivers did not

(Kockelman, 2006).

Additionally, respondents favored devoting lanes specifically to trucking and high

occupancy vehicles in order to address growing congestion concerns on highways (Kockelman,

2006). Smirti, Evans, Gougherty, Morris performed a study of trends within California (2007).

By looking at Value Pricing and High-Occupancy Toll lane pricing, Smirti et al. found that in

order to successfully execute road pricing projects in California, policy needs to be focused “to

provide more capacity, travel-time savings, and travel options, and avoid pricing facilities that

have no free alternatives” (Smirti, Evans, Gougherty, & Morris, 2007, p. 41). High-Occupancy

Toll lanes solicit fewer public objections than other debated alternatives. David Levinson reports

that recycling under-utilized transportation routes or modes, for example converting High-

Occupancy Vehicle or Carpool lanes to High-Occupancy Toll lanes, is highly favored by the

public as it brings efficiency to the roadway without disrupting the norm (2010). Increasing

16

capacity on the roads is of utmost concern to drivers because the public supports the reduction of

roadway congestion.

Mileage Fees

The second policy alternative to generate funds for the maintenance of California’s

roadways is to implement a system in which drivers pay a fee per mile driven. This system

generates a source of funding that is representative of the wear and tear that the roads are

enduring (Oregon Department of Transportation, 2010). Currently with the gas tax, drivers with

less fuel-efficient cars contribute considerably more to the road system than drivers with hybrid

or electric cars (Bolton, 2010). Since weight is the only difference between cars and their ability

to deteriorate the roads, two similarly weighted cars should not pay different amounts for equal

miles driven (London, Peek, Saltzmand, & Gunaydin, 2001). A distance-based pricing system

provides an avenue of funding for roadway maintenance directly correlated to the use of the

roadways thus helping sustain maintenance funds now and in the future. As a funding source,

this policy faces issues of high start-up, research, and development costs, uncertainty of

acceptance, and questionable long-term sustainability (Whitty, 2007). On the other hand, it

creates equity across all drivers by removing the advantages of wealth and fuel-efficient vehicles

to evade high gas tax payments at the pump (U.S Government Accountability Office, 2012).

User fees for transportation exist in many forms including truck weight, container,

vehicle registration, and licensing to name a few (California Transportation Commission, 2011).

According to Kockelman, respondents generally agreed heavy vehicles that deteriorate roads at a

more rapid rate should assume a higher burden of the maintenance and repair expenses (2006).

Road use charges, such as trucking and licensing fees, are an established form of funding

transportation; however, policy makers now face the possibility of expanding these programs to

the miles traveled on roads by all drivers. These current revenue sources, while they generate

17

considerable income to fund transportation related expenses, are committed funds that cannot be

funneled into transportation maintenance without underfunding other vital programs (London,

Peek, Saltzmand, & Gunaydin, 2001).

The mileage-based pricing system is a policy initiative aimed at replacing the current gas

tax with a more equitable and more viable funding option for California’s roadways (Levinson,

2010). This policy option proposes the installation of on-vehicle devices to track the miles driven

and transmit said data to responders at gas service stations upon fuel up (Whitty, 2007). This

mileage data helps calculate the appropriate dollar amount to charge drivers for the roadway

damage inflicted since last fueling the vehicle. The mileage-based system attempts to hold

drivers responsible for damage to the roads that they cause (Dieringer Research Group, 2008).

The vehicle miles driven fee system allows municipalities to focus on the damage incurred based

on the usage of the roads. Due to the dire condition of roads, alternative funding options such as

the proposed mileage-based policy attempt to reform a dilapidated and outdated system by

implementing a user fee approach to funding (Transportation for Tomorrow, 2007).

Upon start-up, this program faces costs related to the necessary data collection and

transmission in addition to service station infrastructure upgrades. This system will collect

mileage data using an on-vehicle device that transmits data to gas service stations in order for

drivers to pay a given amount per mile driven since last fueling their vehicle (Whitty, 2007). The

first major cost of the system is the device that will collect and transmit the necessary mileage

data. Research and development costs are also extensive to create a tamper proof device that will

reliably transmit mileage data and charge drivers for their use of the roadway system (Whitty,

2007). In addition to the on-vehicle device, upgrades to gas service stations must be made in

order to receive the mileage data from vehicles and charge drivers the appropriate amount for the

miles driven (Whitty, 2007). As this is not yet a standard device installed on vehicles at the time

18

of manufacturing, it must be installed on vehicles after the fact thus incurring installation and

maintenance costs for the devices. Creating prototypes for this policy necessitates significant

equipment, software, and installation costs that will need further evaluation and costs estimation

to determine the policy’s overall feasibility.

Once this policy is implemented and the necessary start-up actions have commenced, the

operation, maintenance, enforcement, and auditing of the system will require exponentially more

resources. Operation and maintenance of the system includes expenses for devise installation,

databases, administration of the program, and evaluation of inflation shifts (Whitty, 2007).

Creating a system and database that maintains the mileage data will prove difficult due to the

necessary capacity and security needs of the system and technological expenses to maintain its

accuracy and viability to maintain fiscal solvency of the revenue source (Munger M. C., 2000).

In addition, enforcement of the mileage fees requires considerable auditing of the physical

devices, vehicle odometers, and gas service station receivers to ensure the accuracy and precision

of the data collected and fees paid by drivers (Luburic, Miljkovic, & Buntak, 2011) (Whitty,

2007). As a source of funding for roadway maintenance, it will be important to ensure the

accuracy of the system. Sustainability is questionable for this alternative due to the turnover rate

of vehicles (Dieringer Research Group, 2008). This program presents a constant need for

installation as every vehicle needs a transponder, thus the necessary equipment and maintenance

costs could be high. However, if this policy is expanded, eventually all new cars could have these

devices installed and programed prior to purchase thus eliminating the need for future installation

(Whitty, 2007).

Moreover, this program faces tremendous uncertainty because it proposes an increase in

financial contributions from citizens and faces issues of sustainability (Committee for the Study

of the Long-Term Viability of Fuel Taxes for Transportation Finance, The National Academies ,

19

2006). Some research has commenced to gain an understanding of the public reaction to this type

of program. Main public concerns from the Oregon case study center on the apprehension with

the government tracking personal driving patterns. U.S. Department of Transportation research

shows that these public opinions highly influence the acceptability of the vehicle miles traveled

fee systems. Unfortunately, much of this research is based on a hypothetical context thus citizens

may not be adequately assessing the possibilities of the program (Dieringer Research Group,

2008).

Using the research gathered from the State of Oregon’s pilot program, analysts can

evaluate the small-scale success and acceptance of the program. Pilot program reports show an

increase in funding and a general acceptance of the program by voluntary participants (Whitty,

2007). Policy makers must address mitigation strategies to satisfy the public’s privacy concerns

prior to a statewide implementation of this funding source. Unfortunately, these results cannot be

accepted at face value because the responses are a result of voluntary actions. It cannot be

assumed that the greater population will share these same beliefs and opinions about the program

(Colorado State University, 2012) (Dieringer Research Group, 2008).

On the other hand, Kockelman’s public opinion study in Texas identified that when given

the choice of funding methods, fuel taxes were deemed the most inefficient and equating use to

the fees charged was desired by respondents (Kockelman, 2006). This presents considerable

uncertainty and risk for this program because the most current and viable research available needs

extensive validation and analysis of its transferability to the State of California. In addition, the

initial start-up costs of this program present considerable risk to the success of the program

(Oregon Department of Transportation, 2010). If the program fails or meets implementation

difficulties after the extensive costs, little research indicates the program’s long-term viability

(Whitty, 2007). As stated above, this program faces sustainability issues thus if these issues

20

cannot be mitigated then the overall viability of the policy is degraded by the constant

redevelopment and technological costs.

This policy presents a complex decision dilemma for policy analysts. With high initial

costs of the program, policy analysts should utilize additional avenues for decision making in

order to address and consider all obstacles for the program. For example, considerable public

opinion studies should be conducted in order to understand the potential public pushback for the

program (Dieringer Research Group, 2008). This program directly affects the amount of funding

contributed to the maintenance of roads and thus it will be important for the public to understand

the full benefits and costs. In addition, gaining an understanding of all alternatives for funding to

establish the most viable policy option is essential.

State Fuel Sales Tax

The final alternative to this policy issue is to amend the current gas excise tax in

California to a State Fuel Sales Tax. According to the California State Controller’s Office, the

current gas tax in California is an

excise tax in the amount of 18

cents per gallon for a combines

local, state, and federal tax rate

of approximately 67 cents per

gallon (California State

Controller's Office, N.D.)

(American Petroleum Institute,

2013). A comparison of

California in relation to other states is depicted in Figure 2 above. Reform to the current fuel tax

structure will remove the flat cents per gallon excise tax and implement an ad valorem tax on the

Figure 2: Gasoline Taxes

21

sale of fuel in the state (Transportation for Tomorrow, 2007). This type of tax places a fixed

percentage tax on each fuel sale. Research proves that Californians’ driving habits have

increased exponentially in the last decade thus restructuring the gas tax to accommodate the wear

and tear on roads is justifiable (Bolton, 2010). However, these driving habits may shift with an

increase in gas expenses encouraging the use of more fuel-efficient vehicles.

The current funding source for the maintenance of roads, the gas tax, leaves a funding

gap year after year due to inflation and the considerably lower purchasing power of a dollar, thus

making the maintenance of roadways more of a problem (Markow, 2012). Upon implementation

of the gas tax, there were considerably fewer vehicles on the road and less surface damage to the

roadways than in the present day (London, Peek, Saltzmand, & Gunaydin, 2001). As inflation

has risen over the years, the purchasing power has diminished considerably thus further

burdening the State’s ability to pay for road maintenance (California Department of

Transportation, 2010). Additionally, since the development of high efficiency vehicles, the

current roadway maintenance funding options do not generate equitable or representative funding

levels for the damage incurred on the roads.

Implementing a sales tax on fuel will establish a funding stream that adjusts to the

changes of gas prices and inflation. The low administration costs of a sales tax on fuel are highly

beneficial as the tax structure in California is already established (Transportation for Tomorrow,

2007). A shift to the application of this tax will have minimal cost increases to the state and pose

few additional long-term burdens on the California State Budget (U.S Government

Accountability Office, 2011). Research shows that a 1-cent increase in the current tax will

generate approximately $1.9 billion more in tax revenues. Thus, shifting to a sales tax will

potentially increase the revenues exponentially as the revenues will increases with the cost of gas

(Transportation for Tomorrow, 2007).

22

On the other hand, legislation is required in many states to alter the fuel tax structure thus

raising the excise tax or shifting the fuel tax structure is difficult if not impossible depending on

the political environment (Transportation for Tomorrow, 2007). Public acceptability of this

alternative is discouraging for lawmakers, as history has shown many state failures when passing

an ad valorem tax or fuel tax indexing in past decades (Public Policy Institute of California,

2010). For example, in the 1980s, about 15 states attempted to implement formulas to maintain a

proportional tax rate to inflation; however, the inability to predict steady revenues and lack of

political and public support caused the policies to be withdrawn (Committee for the Study of the

Long-Term Viability of Fuel Taxes for Transportation Finance, The National Academies , 2006).

Additionally, as stated above, surveys show that the public perception is that fuel taxes are an

inefficient method of assessing the necessary funds to maintain and operate the transportation

system (Kockelman, 2006). Instead, assessing necessary contributions should be based on use

and not fuel sales.

Conclusion

Current California cases show that sole funding is the least common avenue for

transportation projects as the magnitude of projects such as the State Route 91, the Oakland-San

Francisco Bay Bridge, and the Presidio Parkway reach into the billions of dollars to construct. By

combining funding options and road pricing alternatives, transportation agencies can limit the

perceived burden on the public. Considerations for local opinions, possibilities for alternatives,

and specifics of each situation should be addressed in order to successfully implement alternative

transportation funding policies (Surface Transportation Policy Project, 2000). These alternative

transportation projects face public scrutiny; however, examples of successful cases throughout the

country show that with careful manipulation of policy and public support, the potential for

successful implementation of funding alternatives exists in California.

23

Chapter 3

METHOD FOR EVALUATION

This chapter outlines the method of performing the analysis of alternative funding

options. I begin by breaking down the importance of conducting a thorough analysis of public

policy by explaining the elements of Eugene Bardach’s (2009) Eightfold Path. Secondly, I

describe the principles of conducting a qualitative and quantitative Criteria Alternative Matrix

(CAM) and how this method will aid in the decision making process. Additionally, this chapter

identifies and justifies the specific criteria and weights used to analyze the proposed policy

alternatives. Finally, I address the importance of a sensitivity analysis and explain my approach

for conducting one to validate the CAM results.

The analysis of public policy consists of ethical and moral conversations alongside

weighing the political and organizational implication of options. Bardach (2009) proposes a

framework for policy analysis called the Eightfold Path. This framework outlines the steps of

analysis in order to address all aspects of the policy problem. The eight procedural steps outlined

are problem definition, gathering evidence, identifying alternatives, criteria selection, projecting

outcomes, weighing tradeoffs, deciding on a policy alternative, and illustrating the story.

Problem definition is the first and most important step of policy analysis as it sets the

groundwork for solving the policy issue. Defining the policy problem provides analysts with a

purpose for researching, evaluating, and recommending solutions to decision makers for change.

A problem statement addresses the political, social, and/or economic insufficiencies of the current

practice directing research toward possible solutions. Nevertheless, desired solutions should not

be identified in the issue statement and revaluation of the problem should occur at every stage of

policy analysis. The introduction of this thesis identifies a clear policy problem in transportation

funding due to the gap between revenues and needed expenditures. By providing industry and

24

historical background on the issue, Chapter 1 lays the framework for this public policy dilemma

that requires public intervention.

Following problem definition, the next natural stages are to gather evidence and

determine possible policy alternatives. Assembling research and data are an essential element of

policy analysis in order to gain an understanding of available research and information available

on the topic. It is important to evaluate the literature and data available to determine whether the

policy problem has already been answered or if the necessary expertise or data is available to

develop solutions. Furthermore, reviewing the research aids in the identification of policy

alternatives. Devising alternatives is a matter of assessing possibilities from research and experts

while also looking for innovative solutions. The process of developing alternatives begins with a

broad scan of possibilities to ascertain general policy directions. An analyst concludes this

process by focusing on specific alternatives to assess for implementation. Chapter 2 addresses

the industry and academic research available on alternative transportation funding options. This

research identified three main types of policy for California to implement which serve as the

alternatives for this thesis: Public-Private Toll Roads, Mileage Fees, and State Fuel Sales Tax.

Bardach’s fourth step in the Eightfold Path is to select criteria to evaluate the outcomes of

the policy alternatives. In order to understand the potential for each alternative, policy analysts

must look to the possible outcomes for society. Using criteria allows for the inclusion of values

especially when criteria are weighted to reflect the priority of each criterion in the decision

making process. The quantitative CAM described later in this chapter identifies specific criteria

and weights that are used to evaluate the alternatives. Bardach’s criteria element aids the

assessment of outcomes through this CAM analysis to provide recommendations to decision

makers. Furthermore, predicting outcomes helps facilitate the CAM and decision making

process. By playing through the possibilities, both positive and negative, for each of the

25

alternatives, an analyst is able to determine the appropriate weights and ranking of each

alternative and criteria. This step is explained in detail in the evaluative criteria section below,

the results of which are depicted in the Analysis Chapter.

Likewise, a policy analyst must confront the issues within each policy alternative

especially concerning tradeoffs. For example, a policy that proposes increased services will

likely have added costs to the municipality as a tradeoff. The analysis of alternatives in Chapter 4

provides an opportunity to assess the drawbacks of each alternative and weighs these against the

societal benefits. After assessing these tradeoffs, analysts can make informed decisions in the

form of policy recommendations to decision makers. Deciding on a course of action and

communicating the policy story are the final and essential steps of Bardach’s Eightfold Path.

Culminating the policy analysis with appropriate concluding remarks and recommendations

provides decision makers with synthesized analysis of the data and policy implications. This

aspect is covered in Chapter 5 of this thesis.

CAM Methodology

Decision making in the public policy realm requires an analysis of alternatives and policy

options that evaluates each with consistent criteria. This thesis is purposed at assessing available

funding options in California and providing a tool that aids the discussion and decisions between

alternatives. The CAM is a method of organizing the policy analysis process that follows the

essential elements of the Eightfold Path (Bardach, 2009). By choosing alternatives and criteria to

evaluate, the CAM provides a method for comparison and evaluation of each (Munger M. C.,

2000). The CAM analysis allows for evaluative weighing and ranking of alternatives based on

specific criteria that play a role in deciding the value of the policy alternative.

Performing a quantitative CAM analysis involves the development of alternatives,

decision criteria, quantitative weights, and a scoring system. In order to assign these values and

26

properly assess the alternatives, I first perform a qualitative CAM analysis evaluating the

contributing factors for each as it relates to the criteria. The qualitative analysis allows for proper

comparisons by evaluating the consequences of each alternative in relation to the corresponding

criterion and permits readers to understand the benefits and drawbacks that each option offers.

The findings from this analysis are provided in Chapter 4 along with the quantitative CAM

results. The literature review identified three main funding alternatives, Public-Private Toll

Roads, Mileage Fees, and State Fuel Sales Tax, which serve as the policy options for evaluation.

Public-Private Toll Roads is a policy option where roads are leased to private firms that utilize

tolling to generate funds for lease payments and maintenance of the roadway. The Mileage fees

program utilizes an on-vehicle devise to record and report miles driven to service stations to

charge drivers the appropriate fee. Finally, a State Fuel Sales Tax converts the current fuel excise

tax to an ad valorem tax to charge a percentage of each sale versus the current flat cents per

gallon.

Additionally, four evaluative criteria serve as the elements used to determine the viability

of each alternative (Munger M. C., 2000). These criteria are selected for the intended audience

and analyze the alternatives based on the needs of decision makers (Bardach, 2009). By

assigning alternatives to the rows and criteria to the columns of the matrix, each cell signifies the

evaluation of the corresponding alternative and criteria.

Furthermore, this evaluation is done both qualitatively and quantitatively to express

outcomes and strength of each alternative (Bardach, 2009). The quantitative CAM approaches the

alternatives and criteria mathematically by assigning weights to the criteria and ranking each to

calculate the value of different policy options (Munger M. C., 2000). This method allows for

adjustment as the audience can change a weight or ranking based on their values and generate an

outcome that is more fitting of their priorities.

27

In order to assign a value to each option this analysis uses a ranking system of 1-5 where

1 represents “very weak”, 2 represents “weak”, 3 represents “moderate”, 4 represents “strong”,

and 5 represents “very strong”. These rankings allow policy decision makers to understand the

relative impact of each criterion on the policy problem. The ranks are assigned relative to the

other alternatives. In addition to ranking the alternatives, I assign a weight to evaluate their

overall importance. These weights attempt to balance the importance of each criterion in the

overall equation; depending on one’s values and priorities these weights can vary dramatically.

After assigning and evaluating the values, multiplying the ranking and weight of the alternative to

criterion produces a score that estimates the value of the policy option. This CAM structure can

be seen in Table 1 below. The method is merely a way of evaluating policy options; the decision

of choosing the most appropriate alternative requires additional consideration of each and the

implications they may present.

Table 1: Quantitative Criteria-Alternatives Matrix (CAM) Rating: (1) very weak (2) weak (3) moderate (4) strong (5) very strong

Criterion 1: Low Administrative

Cost

Criterion 2: Equity

Criterion 3: Sustainability

Criterion 4: Internalizing

Negative Externalities

TOTAL

Alternative #1

Public-Private

Toll Roads

Alternative #2

Mileage Fees

Alternative #3

State Fuel Sales Tax

28

Evaluative Criteria

In order to evaluate the three policy alternatives discussed above, I identified three

criteria that are relevant to both the State of California and its residents. Criteria are selected as

the benchmark measures for analyzing policy options. Transportation funding is a sensitive

policy topic because it requires significant financial resources and continues to need a strong

political champion to create change.

The evaluative criteria selected for this CAM analysis are low administrative cost, equity,

sustainability, and internalizing negative externalities. These measures were selected to address

four core concerns of passing transportation policy. The low administrative cost criterion

addresses concerns of implementing fiscally sound policy that will not over burden the California

State Budget or require extensive taxes to fund (Taylor, 2011A). Equity looks to account for the

fairness of the policy and attempts to evaluate the it’s parity across the population or drivers. It is

critical to assess this aspect, as policy makers must limit the disproportional incidence of public

policies on specific groups. Additionally, due to pressures on policy makers for timeliness of

legislation and the budgetary process, sustainability is selected to evaluate how the policy will

endure with time. Since there is increased difficulty to pass taxes and new legislation, it is

important for decision makers to implement policies that are self-sustaining and adjust with the

demands (The Economist, 2009). Finally, assessing negative externalities is an important factor

of policy analysis to address the market failures associated with driving. The internalizing

negative externalities criterion evaluates each policy’s ability to solve the market failures of

driving and the transportation industry.

Each of these criteria carries a different weight in the quantitative CAM analysis as to

demonstrate the value of each and provide a basis upon which to evaluate the economics,

fairness, and long-term effects of the policy alternatives (Munger M. C., 2000). Table 2 below

29

depicts the assigned weights of these criteria, the justification for which I explain in more detail

with each of the criteria.

Table 2: CAM Criteria Weights Criterion Weight

Low Administrative Cost .40 Equity .25 Sustainability .20 Internalizing Negative Externalities .15 Total: 1.00

Low Administrative Cost criterion evaluates a potential program’s costs against its

outcomes. This criterion is purposed at performing a revenue analysis to determine the

effectiveness of the revenues source. Meaning if the revenue source generates high revenues but

also incurs excessive expenses to implement and administer the program then the policy would

have a low revenue benefit. Since this analysis aims at selecting a policy option that will increase

the available funding for roadway maintenance, the costs associated with the additional revenue

should be minimized if possible.

For a program to score well in the low administrative cost criteria, it must provide a

larger advantage than the costs incurred by implementing it. The highest scoring policy in this

criterion yields the highest return relative to the costs of implementation. An alternative that

scores poorly in this criterion would be costly with little benefit for society (Munger M. C.,

2000). In other words, if the alternative is relatively less costly to the state to implement and

returns substantial funds to maintain the roadways, it would rate strong in the low administrative

cost criterion. The budgetary crisis in California drives many policy decisions now as resources

are limited and policy makers are looking at spending cuts in order to balance the State Budget

(Taylor, 2011B). Due to California’s current financial crisis and inability to invest in expensive

programs with questionable outcomes, this criterion carries the highest weight of 0.4 in the

30

quantitative CAM analysis. Of the three evaluative criteria, policy makers emphasize revenue

benefits the most, thus its weight should reflect the largest portion of the equation.

The second criterion, equity, evaluates the fairness of a policy alternative relative to the

stakeholders: Caltrans and California drivers. A strong equity rating signifies that the policy

option incorporates the needs of all parties involved, successfully generating the funds necessary

to maintain the roadways without subjecting any one party to extreme hardship (Monroe,

Schmidt, & Westwind, 2006). This means that if an alternative negatively affects the poor, it will

score a weak equity rating. The intent is to distribute the burden of roadway maintenance

proportionately. In a perfectly equitable situation, the desirable alternative to California’s

roadways funding policy problem would equally make drivers liable for the wear and tear that

they personally cause to roads without targeting one demographic over another (U.S Government

Accountability Office, 2012). For example, heavier vehicles and those who drive excessively

should carry a larger portion of the funding burden for roadway maintenance. However, in many

cases the poor are disparaged more than the wealthy. For instance, the tax incidence for fuel

taxes is disproportionately placed on those who cannot afford expensive hybrid vehicles or who

must travel longer distances to work from affordable housing options (U.S Government

Accountability Office, 2012). These conditions require the poor to contribute higher amounts to

fuel tax revenues with the purchase of more gas.

Evaluating the equity factor for each policy option helps decision makers understand the

impact on society of each alternative. While a toll of $4 per passage is an equal amount per

person, the placement and frequency of that toll may be inequitable because it is the only route

out of a neighborhood or town, thus disproportionately affecting one group of individuals

(Monroe, Schmidt, & Westwind, 2006). I have assigned this criteria at 0.25, making it valued as

the second most important for California and its residents. The concern for equitable policy

31

warrants a high weight in the CAM analysis since research shows that transportation funding’s

complexity is inherently biased as there are methods to avoid contribution.

The sustainability criterion evaluates the capability for the program to withstand time

with the least amount of intervention in the form of manipulation or additional spending after the

initial policy has ended. This criterion looks at the future outcomes of a program and gauges

whether or not it can sustain itself without future public intervention or reform (One Hundred

Twelfth Congress of the United States of America, 2012). In terms of maintaining roadways, no

program is completely self-sustaining; however, a policy alternative that continually generates

revenue based on the wear and tear induced on roads provides funds for maintenance more

closely matched with the potential need (Colorado State University, 2012). Creating a solution

that is proactively sustainable by making drivers pay for their use of roads is optimal for this

policy problem, thus this criterion will help decipher which solution best fits California’s needs. I

weigh this criterion at 0.2 because even though it is important to create a sustainable program, it

is expected that monitoring and regulation will still be necessary in ensure that the program

continues to generate sufficient funds in an equitable manner. Since the economic downturn and

the rise of public involvement, groups like the Occupy Movement stress the need for responsible

and accountable policy. As policy makers want to avoid negative opinions and expedite bills, this

weight emphasizes sustainability but does not require a flawlessly sustainable policy.

The final criterion, internalizing negative externalities, addresses each policy’s ability to

correct market failures in surface transportation funding. A negative externality occurs when the

actions of one person diminishes the welfare of another who has no control over the actions of

others. This economic event occurs frequently especially as it relates to driving habits. Driving

has many negative externalities including congestion degradation of roads, and collisions. These

negative externalities occur when there is a market failure in the industry. Thus, policy proposals

32

should attempt to internalize these externalities and make the market more effective. The

internalizing negative externalities criterion evaluates the policy’s ability to lessen the

externalities of driving (Dubner & Levitt, 2008). An effective policy for this criterion would

decrease the externalities such as congestion and road damage due to the increased price to drive

and people’s choice to find more cost effective methods of transportation. Creating market

efficiencies is a desirable attribute of public policies as it limits future need for intervention by

governmental agencies. This criterion is weighted at 0.15, as internalizing the externalities is a

benefit of the program because it potentially decreases the roadway maintenance needs if drivers

chose to alter their driving habits. This criterion is weighted the lowest because it may be

difficult to predict the rate at which externalities will be internalized. While some people may

change their driving habits due to an increase in taxes, others may have a higher threshold for

driving costs.

Sensitivity Analysis

The sensitivity analysis in quantitative evaluations is a process of determining the level of

uncertainty among the options. The purpose of this test is to gain an understanding of the

relationship between the alternatives and chosen criteria (Sensitivity Analysis, N.D.). When

evaluating policy options, it is critical for decision makers to know the variance in results should

the criteria priority or emphasis shift. To test the validity of the quantitative CAM analysis, I

present the results of a sensitivity analysis in Chapter 4. This analysis determines whether

significant changes occur when the weights or values of each criterion are changed (Munger M.

C., 2000).

Due to the specific criteria used in this analysis, the CAM is likely to be sensitive to

varying weights of the criteria. Depending on the varying priorities of decision makers, different

weights for each criterion can change the results of the CAM analysis dramatically (Munger M.

33

C., 2000). It is important to evaluate different possibilities for weighing criteria to capture the

potential changes to the results of the analysis. For example, recent policy initiatives in

California and throughout the country have stressed the importance of responsible policy making

thus sustainability may be of higher importance now than ever before (One Hundred Twelfth

Congress of the United States of America, 2012). For this reason, the sensitivity analysis adjusts

the weights to reflect a priority for sustainability. In this case, I will use 0.3 as the weight for

sustainability in the sensitivity analysis. Additionally, internalizing negative externalities has the

potential to decrease the need for future policy and needed maintenance of roads due to reduced

driving. This benefit adds to the sustainability criterion and thus it is weighted 0.2 in the

sensitivity analysis. Furthermore, equity is an issue that can be handled at multiple levels of

government. Policy makers may decide that a policy like tolling is viable statewide and leave the

equity consideration to transportation agencies when determining which tolls to implement. For

this reason, the criteria should be of less value to decision makers and is assigned a 0.2 weight in

the sensitivity test. Finally, as low administrative cost is of utmost concern to policy makers in

this current financial crisis, it is expected that it will maintain a high level of importance to

decision makers (California Department of Transportation, 2011). With new trends to create

efficient policies and cut unnecessary waste within government agencies, this sensitivity analysis

must maintain a high weight for the low administrative cost at 0.3. Table 3 below summarizes

these weights for the sensitivity analysis.

Table 3: Sensitivity Analysis Criteria Weights Criterion Weight

Low Administrative Cost 0.3 Equity 0.2 Sustainability 0.3 Internalizing Negative Externalities 0.2 Total: 1.00

34

I test the criteria and alternatives with these different weights assigned to understand the

sensitivity of the policy options. Major shifts in the CAM results will show that the alternatives

are highly sensitive to the weights and thus the priority of the criteria by decision makers

(Sensitivity Analysis, N.D.). However, if the results remain relatively similar, then the analysis

and criteria reflect a firm evaluation of the alternatives with little fluctuation with differing

political and societal priorities.

35

Chapter 4

ANALYSIS

This chapter assesses the policy alternatives outlined in chapter 2 using the evaluative

criteria specified in chapter 3. For each alternative, I first explore the qualitative CAM analysis

and explain the considerations that lead to the rating determination for each criterion. The

qualitative analysis addresses the criteria and explains the reasoning for the value determinations

that are depicted in the accompanying quantitative CAMs. The quantitative CAM shows the

calculation for the alternatives and criteria to determine the total CAM value of each alternative.

Finally, I address the Sensitivity Analysis and explain the meaning and implications of the

changes to the results.

Alternative 1 – Private-Public Toll Roads

The Private-Public Toll Road program consists of leasing roads to private entities,

relinquishing the State’s maintenance and operation expenses. These systems have expanded

greatly in places like Japan and Europe helping mitigate the extreme costs to maintain and

manage roads.

Criterion 1: Low Administrative Cost

The administrative costs related to this policy are focused on program implementation,

contracting services, and roadway inspections to determine adequate operation and

administration. Ensuring proper payment of lease agreements and contract administration is also

a factor that increases administration and auditing costs for the program (Brown, 2007) (London,

Peek, Saltzmand, & Gunaydin, 2001). Additionally, as identified in the literature review in

Chapter 2, drivers do not favor this alternative and thus the State may encounter resistance from

voters and interest groups that will incur added public expenses. However, delegating the brunt

of the maintenance expenses to private firms makes this program strong in the low administrative

36

cost criteria because the majority of expenses and construction are managed by the private sector.

Additionally, these private-public agreements guarantee a constant revenue stream to the state in

the form of lease payments for decades to come. The consistent revenue stream is expected to

outweigh the costs of implementation thus this alternative is rated a 4 value for strong in the Low

Administrative Cost criterion.

Criterion 2: Equity

While toll roads present an opportunity to charge for access to roads or lower congestion

lanes, these roads present an equity dilemma depending on the implementation and selection of

roads to toll. The placement of these toll roads must be considered in order to prevent

overburdening a particular group. Although the dollar amount per passage on the route may be

equal, the ability or need to use said road may overburden the poor. For example, tolls are

typically implemented on highways inbound to cities. Many disadvantaged individuals seek

lower income homes outside of downtown area yet must commute to places of employment

within city lines, thus are subject to toll roads more than drivers that can afford intercity housing

options. However, some tolling options are limited to increased lanes that target drivers desiring

lower congestion and thus not all lanes on the route are tolled. Due to this disparity in the

potential implementation of toll roads, Private-Public Toll Roads are rated very weak (1) in the

equity criteria.

Criterion 3: Sustainability

Private-Public Toll Roads is a policy designed for long-term investment and return for

the State. As this policy looks at private sector investment in roads and leasing agreements to

span decades, this policy is purposed at implementing sustaining revenue streams from the private

sector to invest on non-tolled roads and the security that leased roads will be operated and

maintained according to regulation for years to come with little intervention from the State.

37

These stipulations in the program attempt to assure sustainability of the policy and viability of

roadway maintenance funds into the future. However, this policy carries the possibility that the

venture does not prove profitable or beneficial for the private sector entity and it dissolves or

walks away from the private-public tolling commitment. Research identified few instances where

these private-public toll roads failed in their intent either due to bankruptcy or uncontrolled rate

increases due to poor economy and insufficient revenues (Minnesota Trucking Association,

2012). These failures can require additional intervention from the state, which jeopardizes

sustainability. These instances are rare and with appropriate legal precautions within the

agreement, State agencies can protect their interests and institute regulative controls on the

private entity. This alternative thus rates very strong (5) in the sustainability criterion.

Criterion 4: Internalizing Negative Externalities

Public-Private Toll Roads in general do not internalize the negative externalities of

driving. However, some toll roads take the form of High Occupancy/Toll (HOT) lanes provide

the option for single occupancy vehicles to drive in carpool lanes for a fee. This popular

adaptation in Southern California creates a market for decreased congestion, thus internalizing

this negative externality. By providing this option, drivers in a hurry or frustrated with other

vehicle may pay to use other lanes for speedier travel. In doing so, not only does the driver enjoy

the benefits of the carpool lane but also as a result, there is one less driver contributing to the

congestion on regular lanes. The alternative being evaluated in this thesis, Private-Public Toll

Roads, is a policy to approve the expansion of privatizing roads with the use of leasing and tolling

agreements. This policy can take many forms including HOT lanes that may internalize negative

externalities of driving by adjusting fees based on time of day or number of passengers. When

this policy is implemented on entire interstates or bridges there is no internalizing of negative

externalities as congestion, roadway damage, and collisions are not decreased by this policy

38

option. Consequently, Public-Private Toll Roads rate weak (2) for the internalizing negative

externalities criterion.

Table 4: Public-Private Toll Roads Quantitative CAM Rating: (1) very weak (2) weak (3) moderate (4) strong (5) very strong

Criterion 1: Low Administrative

Cost

Criterion 2: Equity

Criterion 3: Sustainability

Criterion 4: Internalizing

Negative Externalities

TOTAL

Alternative #1

Public-Private Toll

Roads

Rating: 4 Weight: 0.4 Total: 1.6

Rating: 1 Weight: 0.25 Total: 0.25

Rating: 5 Weight: 0.2 Total: 1.0

Rating: 2 Weight: 0.15 Total: 0.3

3.15

Alternative 2 – Mileage Fees

A mileage fee system proposes installing on all vehicles a devise that record miles driven

in order to charge drivers for the damage imposed on the roads based upon the miles driven.

Criterion 1: Low Administrative Cost

This policy presents considerable start-up, product research, and development expenses

related to implementation. Additionally, the administrative and auditing expenses for this policy

are high as state agencies must to ensure the program is operating appropriately and fees are

collected in accordance with the laws and regulations. On the other hand, this program shifts the

collection of dollars to reflect the accurate amount of damage to roadways. Since all vehicles are

charged for their miles driven and not the fuel consumed, the program will increase revenues to

account for high efficiency vehicle drivers currently not contributing a proportionate amount to

the maintenance expenses imposed. For these reasons, relative to the other policy options, this

alternative is rated weak (2) in the Low Administrative Cost criteria as it is expected to require

extensive implementation and continued administrative costs for California.

39

Criterion 2: Equity

The mileage-based pricing system attempts to bridge the equity gap that currently exists

in the contribution toward the maintenance of California’s roads. A pressing issue with funding a

program is determining whether anyone is particularly overburdened by the policy. Currently

with the gas tax, drivers who have less fuel-efficient vehicles contribute considerably more to the

road system than drivers who have hybrid or electric vehicles (Bolton, 2010). Since weight is the

only difference between cars and their ability to deteriorate the roads, two similarly weighted cars

should not pay different amounts for the same miles driven. The mileage-based fee system

attempts to fill the gap between the weight and fuel excise tax contributions by creating a more

equitable distance over consumption fee.

In recent years with the increasing price of gasoline, the presence of hybrid and electric

vehicles has increased. These vehicles are options for the wealthy and provide an opportunity for

people to use less fuel and in turn pay less gas tax to maintain the roadways. Unfortunately, since

fuel-efficient vehicles are only an option for financially affluent individuals, the financially

disadvantaged population contributes an inequitable portion of the funding for road maintenance

(Dieringer Research Group, 2008). The mileage-based pricing program is highly equitable in this

aspect because it charges drivers for the miles driven thus each person contributes their fair share

towards maintenance based on the deterioration of the roads they incur (Whitty, 2007). This

program accommodates for hybrid and electric vehicles creating more damage to roads than their

owners pay in gas taxes by charging all drivers for each mile driven and thus the damage to the

roadway system. However, this policy does not account for the reality that poorer families and

communities must driver longer distances as affordable housing options tend to be remotely

located. Thus, this policy is rated moderate (3) in the equity criteria.

40

Criterion 3: Sustainability

The Mileage Fee system is a complicated policy that requires extensive monitoring and

analysis for viability of the funding option. In addition to the expenses for implementing this

program, the development of the on-vehicle devise, research, and analysis of inflation costs to

assess the appropriate price per mile to be charged will necessitate continuous re-evaluation and

manipulation of the policy and program. Furthermore, this policy needs continuous monitoring

and maintenance to the physical devises, service stations, and auditing departments to maintain

accountability and reduce evasion of the fees. While changing the rate per mile to charge appears

simple, the analysis and monitoring required to adequately assess the necessary changes to the

policy and the required legislative action to increase or modify fees creates greater sustainability

issues (Oregon Department of Transportation, 2010). Consequently, mileage fees rate weak (2)

for the sustainability criterion.

Criterion 4: Internalizing Negative Externalities

Transitioning to a system that charges drivers for each mile driven creates a direct

incentive to decrease driving habits and seek alternate forms of transportation. This system

imposes a significant increase in the expenses associated with driving thus it is expected that

drivers will turn to more cost effective methods of transportation. This behavior shift is the

internalizing of the market failures associated with driving. As more drivers seek alternate

transportation methods or carpool, congestion decreases, roadway damage is minimized, and

collisions become less frequent. Unfortunately, this policy does not account for peak driving

times and thus does not directly target congestion concerns. However, it disincentives driving

altogether and research from the Oregon pilot program shows that wide application of this policy

is likely to decrease congestion as drivers seek alternate methods of transportation (Oregon

41

Department of Transportation, 2010). For these reasons, this alternative rates strong (4) for

internalizing negative externalities and provides favorable economic benefits to transportation.

Table 5: Mileage Fees Quantitative CAM Rating: (1) very weak (2) weak (3) moderate (4) strong (5) very strong

Criterion 1: Low Administrative

Cost

Criterion 2: Equity

Criterion 3: Sustainability

Criterion 4: Internalizing

Negative Externalities

TOTAL

Alternative #2

Mileage Fee

Rating: 2 Weight: 0.4 Total: 0.8

Rating: 3 Weight: 0.25 Total: 0.75

Rating: 2 Weight: 0.2 Total: 0.4

Rating: 4 Weight: 0.15 Total: 0.6

2.55

Alternative 3 – State Fuel Sales Tax

A State Fuel Sales Tax utilizes the current tax structure to implement an ad valorem tax

that charges a percentage tax of each fuel sale.

Criterion 1: Low Administrative Cost

This tax has limited additional administrative expenses than are already in place for the

fuel excise tax. However, it proposes a considerable increase to the revenues generated as

research shows that a mere 1% increase in the tax rate will generate approximately $1.9 billion in

revenues. Since this tax structure generates increased revenues for each fuel sale with minimal

increased implementation costs, this revenue source rates very strong (5) in the low

administration costs criterion.

Criterion 2: Equity

The State Fuel Sales Tax increases the rate at which drivers are taxed for the volume of

fuel consumed. This tax will further the gap between wealthy and poor drivers as those with

hybrid vehicles will continue to pay for damage they create based on a lower volume of fuel

sales. This means that disadvantaged drivers will be charged increased tax amounts to account

for the lack of funding contributions by high efficiency vehicles. While hybrid drivers will pay a

higher tax rate along with all other drivers due to this policy, this amount is not equitable to the

42

taxes paid by those driving less fuel efficient vehicles even though the damage to roads may be

the same. Furthermore, the Oregon Center for Public Policy addresses in its tax structure analysis

that both excise and ad valorem taxes are regressive meaning that the taxes paid by individuals

represents a higher percentage of income for disadvantaged drivers than wealthy drivers

(Thompson & Sheketoff, 2003). The inability for this policy to correct this inequity further

compounds that this alternative rates poorly in the equity criterion relative to other policy options.

For these reasons, this policy is rated very weak (1) in the equity criterion.

Criterion 3: Sustainability

Similar to the low administrative cost criterion, sustainability of the State Fuel Sales Tax

is going to mimic the current excise tax program in place. The tax structure will require review

and auditing to ensure the correct rates are applied and that tax evasion is minimized; however,

this infrastructure is already in place for the fuel excise tax and all taxes applied in California.

Additionally, since this tax will implement a percentage to be charged per fuel sale, it will not

require any assessment of inflation or cost of living expenses. This ad valorem tax will adjust the

revenues as the sale prices increase due to demand and inflation. On the other hand, since this

alternative does not account for high efficiency vehicles, should the industry transition primarily

or solely to hybrid or electric vehicles, fuel sales will decrease and this policy will no longer

provide adequate funding to maintain the roads. Accordingly, this policy alternative is

moderately sustainable (3).

Criterion 4: Internalizing Negative Externalities

Shifting the fuel tax structure to an ad valorem tax increases costs at the pump as the tax

rate changes from a flat cents per gallon to a percentage of each sale. This increase in costs

decreases the demand for driving as it becomes too costly and drivers seek alternative

transportation methods where possible. On the other hand, due to the increased disparity between

43

older and more fuel efficient vehicles, some drivers will not feel the financial impacts of this

increase as drastically. In these instances, the internalization of negative externalities will not be

as significant. Due to the uncertainty of the effect that this policy will have on externalities of

driving this alternative is rated moderate (3) for the internalizing negative externalities criterion.

Table 6: State Fuel Sales Tax Quantitative CAM Rating: (1) very weak (2) weak (3) moderate (4) strong (5) very strong

Criterion 1: Low Administrative

Cost

Criterion 2: Equity

Criterion 3: Sustainability

Criterion 4: Internalizing

Negative Externalities

TOTAL

Alternative #3

State Fuel Sales Tax

Rating: 5 Weight: 0.4 Total: 2.0

Rating: 1 Weight: 0.25 Total: 0.25

Rating: 3 Weight: 0.2 Total: 0.6

Rating: 3 Weight: 0.15 Total: 0.45

3.3

The analysis above identifies the considerations and evaluation of each alternative in

relation to the criteria selected. The qualitative analysis, provided in a narrative format, outlines

the reasoning behind the each of the ratings provided in the quantitative CAM analysis. Tables 4-

6 depict the results of the qualitative CAM analysis. From these tables, the Public-Private Toll

Roads and State Fuel Sales Tax alternatives rated the highest options for implementation with

scores of 3.15 and 3.3 respectively. The lowest scoring alternative is the Mileage Fee system due

primarily to the high cost and troubles with equity and sustainability. However, all three

alternatives have total scores within 0.75 points of each other meaning that there is not a highly

dominant or favored option as the sole source of funding for transportation in California. In the

following section, I perform the sensitivity analysis using the ratings with different weights for

the criteria to determine if a shift in priorities changes the outcome of the CAM analysis.

Sensitivity Analysis

As explained in chapter 3, this sensitivity analysis intends to gauge the shift in the

analysis based on changing priorities or importance of each criterion. The analysis below uses

44

the rating for each of the alternatives and criteria. Chapter 3 identified new weights for each

criterion, which are reflected in the CAM below in Table 7 and are used to calculate the

sensitivity analysis.

Table 7: Sensitivity Analysis Rating: (1) very weak (2) weak (3) moderate (4) strong (5) very strong

Criterion 1: Low Administrative

Cost

Criterion 2: Equity

Criterion 3: Sustainability

Criterion 4: Internalizing

Negative Externalities

TOTAL

Alternative #1 Public-Private

Toll Roads

Rating: 4 Weight: 0.3 Total: 1.2

Rating: 1 Weight: 0.2 Total: 0.2

Rating: 5 Weight: 0.3 Total: 1.5

Rating: 2 Weight: 0.2 Total: 0.4

3.3

Alternative #2 Mileage Fees

Rating: 2 Weight: 0.3 Total: 0.6

Rating: 3 Weight: 0.2 Total: 0.6

Rating: 2 Weight: 0.3 Total: 0.6

Rating: 4 Weight: 0.2 Total: 0.8

2.6

Alternative #3 State Fuel Sales Tax

Rating: 5 Weight: 0.3 Total: 1.5

Rating: 1 Weight: 0.2 Total: 0.2

Rating: 3 Weight: 0.3 Total: 0.9

Rating: 3 Weight: 0.2 Total: 0.6

3.2

The quantitative CAM analysis above in Table 7 identifies that with the new weights both

the Public-Private Toll Roads and State Fuel Sales Tax alternatives maintain the highest total

scores with 3.3 and 3.2 respectively. Additionally, Mileage Fees maintains a relatively similar

score of 2.6 keeping it the least viable policy option. In the sensitivity analysis, Public-Private

Toll Roads and the State Fuel Sales Tax alternatives shifted in ranking making them only 0.1

apart in total score. These very slight changes show that even with varying priorities and weights,

these alternatives maintain very similar results in the quantitative CAM analysis. Since these

results remained relatively similar to those of the original CAM analysis, it is assumed that these

results are accurate and appropriate to base policy recommendations upon.

Conclusion

In conclusion, this chapter analyzed the proposed policy alternatives in a qualitative and

quantitative CAM analysis. Each evaluative criterion was addressed qualitatively in a narrative

45

format to determine the key influences and factors for assessing quantitative values.

Additionally, a quantitative analysis identified the values and calculation of each alternative to

determine its viability as a policy option. Finally, a sensitivity analysis was performed with

different criteria weights resulting in similar CAM results as the original analysis. Chapter 5 uses

these results to identify policy recommendations and implications for decision makers on the

future funding alternatives for California’s transportation program.

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Chapter 5

RECOMMENDATIONS AND CONCLUSIONS

This chapter provides the concluding remarks and recommendations to this thesis given

the transportation funding context and problem, the information gathered through the literature

review, and the results of the CAM analysis. In this chapter, I give a brief summary of the thesis,

the process used, and key findings identified through the Criteria Alternative Matrix. Following

that, I offer policy recommendations based on the analysis and explain how these

recommendations will help solve the transportation funding gap. I conclude by using similar

innovative policy recently instituted by the County of Los Angeles to further inform my

recommendations to California as a whole.

Summary

This thesis aims at evaluating policy alternatives to supplement roadway maintenance

funding. Transportation funding in California is in critical need of reform as increased roadway

damage and decreased revenue receipts has created a deficit between the supply and demand of

funds. After reviewing available industry and academic research on alternative transportation

funding mechanisms, three policy options were identified: Public-Private Toll Roads, Mileage

Fees, and a State Fuel Sales Tax. These alternatives were examined through the literature review

and specific criteria, weights, and ranks explained in the methodology. Using this methodology, I

performed qualitative and quantitative CAM analyses as well as a sensitivity analysis to assess

the viability of the alternatives as they relate to each evaluative criterion. The analysis resulted in

two predominately favored policy options: Public-Private Toll Roads and State Fuel Sales Tax.

The Public-Private Toll Road policy presents the opportunity for the State of California

to capitalize on the efficiencies of the private sector. This alternative provides a steady revenue

stream of lease payments and reduces the inventory of roads for the State to maintain. The CAM

47

analysis identified that this alternative exhibits relatively low administrative costs compared to

other policy options addressed in this analysis. Shifting the maintenance and operation

responsibility to private firms and initiating long-term lease payments to the state establishes a

favorable economic and fiscal impact for California transportation agencies.

Additionally, this structure provides for sustainable policy, as it requires little

manipulation as time progresses. Once the policy is in place, lease and tolling agreements are

arranged between the parties involved. Reevaluation of agreement terms are only done when

deemed necessary due to new legislation or unforeseeable circumstances such as default by the

managing firm. However, the tolling of roads presents equity concerns for the disproportionate

burden of tolling fees on poorer drivers. With these considerations, Public-Private Toll Roads

ranked among the highest two alternatives as a viable long-term policy for implementation

statewide.

On the other hand, the State Fuel Sales Tax proposes altering the fuel tax structure within

California to align revenues with the inflating price of gasoline. This alternative will change the

tax structure from a flat excise tax to an ad valorem tax, which charges drivers a percentage on

each fuel sale. In the CAM analysis, this alternative rated moderate to very strong in low

administrative costs and sustainability criteria. Since the tax structure is well established, the

change proposes little increase in expenses and need for change in coming years. All taxes

require a moderate level of reevaluation to maintain the sustainability of the revenue source;

however, these expenses are minimal in comparison to those of other proposed alternatives to the

transportation funding problem.

Furthermore, this policy increases costs considerably for a driver, which in turn is

expected to incentivize alternative transportation methods. Decreasing the number of drivers on

the road internalizes the negative externalities of driving as congestion, pollution, the probability

48

of collisions, and the degradation of roads decreases. Conversely, as more wealthy drivers have

access to hybrid and electric vehicles, the State Fuel Sales Tax neglects the distribution equity of

the tax on drivers. This tax structure disproportionately burdens those without access to fuel

efficient vehicles or unable to reduce commute distances for other economic concerns. Thus,

while this policy ranks high in the CAM along with Public-Private Toll Roads, it continues to

harm poorer individuals disproportionately.

Policy Recommendations

Policy change in the transportation funding industry is essential, as current funding levels

have not risen to match the degradation of roads. Transportation funding has evolved over the

years; however, no sole funding source has proven sufficient. Many sources struggle to generate

sufficient funds while maintaining low administrative costs, sustainability, and equity among all

drivers. For example, the Mileage Fee system, while well intentioned to bring equity into

transportation funding, presents significant expenses and sustainability concerns making it

unfeasible for California in the current budgetary and economic crisis. Based on the CAM results

identifying two viable policy options to solve the transportation funding problem, I recommend

decision makers implement both as partial funding mechanisms that supplement the overall

funding to California’s transportation needs.

My first recommendation for policy makers is to implement Public-Private Toll Roads as

a long-term solution to California’s roadway funding problems. Implementing this policy

statewide will allow California the opportunity to generate revenues and increase the quality of

roadway travel both on tolled roads and throughout the state due to the revenue potential of the

funding alternative. Since toll roads and public-private partnership agreements take considerable

time to arrange the terms, begin construction, and start realizing revenues, the State cannot expect

a quick turnaround of funding for transportation. The funds from leasing roads, while a steady

49

source of revenue, will take time to initiate and accumulate, as it is unreasonable to expect toll

road establishment on a large scale within the next five to ten years. Due to this delay, this

alternative does not serve as an immediate solution to the funding deficit. Accordingly, as a sole

funding option, this policy is insufficient; however, supplementing the long-term revenues with a

short-term policy will generate the revenues currently needed.

Furthermore, California decision makers should implement the structural change to the

State Fuel Tax. The State Fuel Sales Tax alternative establishes an immediate increase to the

state tax revenues for transportation funding. The ad valorem tax significantly inflates the

transportation tax revenues needed in order to carry out the growing number of roadway projects

throughout California. A sales tax on fuel will maintain a constant percentage charged to drivers,

whereas the current excise tax policy charges approximately 4.5% of the fuel price per gallon,

which fluctuates dependent on the price of gas. This structure solidifies the revenue stream and

assures the transportation industry proportionate funding levels should the price of gas increase.

While this policy has some equity concerns as outlined in the analysis chapter, it provides a high

return on the administrative effort, maintains sustainability, and internalizes many of the negative

externalities of driving. The increases in driving costs because of this policy are estimated to

significantly decrease the number of drivers on the road as alternate forms of transportation are

incentivized. The inherent decrease internalizes negative externalities such as congestion, air

quality, road degradation, and collisions, thus possibly lessening the dramatic demand for

transportation funds in the future, as drivers seek new methods of transportation.

The Los Angeles Metropolitan Transportation Authority (Metro) provides an example of

an attempt to combine these two policy concepts in order to fund transportation within its

jurisdiction. Los Angeles County faces some of the State’s most costly transportation projects as

the population and driving habits are exponentially larger in its metropolitan areas than in some

50

of California’s more rural and less densely populated regions (Los Angeles County Economic

Development Corporation, 2011). In order to address its funding needs, Metro introduced project

delivery and funding initiatives that would generate funds and speed up project delivery times.

These initiatives include the use of Public-Private Partnerships in 2007 and increasing the county

sales tax on all goods in 2008 to fund additional transportation projects (Metro, 2010 B).

The Public-Private Partnership program boasts incredible promise according to Metro as

it will bring in new capital from the private sector, ramp up project delivery and completion rates,

shifts much of the maintenance risk and responsibility to private firms, provides for less costly

construction expenses, and superior roadway quality (Metro, 2010 A). By partnering with private

companies, Metro has found that the efficiencies of providing services at a faster pace with fewer

expenses and potentially better quality can benefit the transportation industry and aid in the

delivery of much needed roadway improvements (Metro, 2010 A). Additionally, Metro proposed

an increase to county sales taxes of a half percent with Measure R, which passed by voters in

2008 by more than 68% (Tan, 2012) (Metro, 2011). This community support displays the

necessary commitment to transportation investment in order to fund transportation appropriately.

According to the economic impact study on Measure R, Metro can anticipate approximately $40

billion in tax revenues over the next 30 years for use toward roadway enhancements throughout

the county (Los Angeles County Economic Development Corporation, 2011).

Due to Los Angeles Metro’s policy initiatives still being in the infancy stages, it is

difficult to determine what successes or failures may arise as projects are developed and executed

under the new funding and policy structure. As noted in the literature review, Public-Private

Partnerships have the possibility of default if the venture turns unprofitable to the private firms.

In these cases, the public agency is reverted the responsibility of operating and maintaining the

51

roadway and must again assume the risks and provide the necessary funding while losing its

revenue source from the leasing agreement.

Additionally, Metro recently faced a funding setback when voters failed to approve a 30-

year extension of Measure R on the November 2012 ballot (Bloomekatz, 2012). Due to the

increasing need for funding and Los Angeles’ goal to issue bonds for the projected future tax

revenue, Metro placed Measure J on the ballot to increase the term of Measure R from 30 to 60

years (Metro, 2010 B). The change in voter support after four years should lead officials to

believe that although Los Angeles residents are committed to fixing their roadway problems,

taxes are not viewed as a sole option. State officials can use these successes and challenges,

although still very new, to understand the feasibility of the proposed policies. Moving forward,

decision makers on the state level weighing these policy options should acknowledge that while

these policy options rate well with the chosen CAM criteria, many additional influences may be

key to the success or failure in implementation.

Metro’s aim with this combined source initiative attempts to utilize the efficiencies of the

private sector while leveraging tax revenues to further the transportation program. By creating an

additional sales tax and limiting risk and construction responsibility, Metro has established a

similar policy structure to the recommendations provided in this thesis. In order to tackle the

growing degradation percentage of roads, California decision makers must act and engage in

policy that will bring an influx to transportation funding levels now and into the future.

California infrastructure is an enormous investment that requires continued maintenance, thus the

funding needs to match the demand. Combining the two highest rated alternatives provides the

State of California with both short and long term solutions to the policy needs. While both

policies have down falls, they meet the funding needs based on the criteria and weights selected

for this analysis. No policy can eliminate all negative externalities and provide a completely

52

equitable front; however, these combined alternatives address many of the concerns driving

policy making today including fiscally responsible and sustainable legislation.

53

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